Milton Friedman: Jewish tradition is so akin to capitalism but many Jews are socialists, what a paradox (Part 3)

Milton Friedman on the American Economy (5 of 6)

Uploaded by on Aug 9, 2009

Host: Richard D. Heffner
Guest: Milton Friedman
Title: A Nobel Laureate on the American Economy VTR: 5/31/77


Below is a part of the series on an article by Milton Friedman called “Capitalism and the Jews” published in 1972. 

Capitalism and the Jews

October 1988 • Volume: 38 • Issue: 10 • Print This Post11 comments

Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Science, is a Senior Research Fellow at the Hoover Institution. This article is reprinted with the permission of Encounter and The Fraser Institute.

“Capitalism and the Jews” was originally presented as a lecture before the Mont Pelerin Society in 1972. It subsequently was published in England and Canada and appears here without significant revision.

The Jews as an Example of the Paradox 

My aim here is not to give a ready answer—for I have none. My aim is rather to examine a particular case of paradox–the attitude of Jews toward capitalism. Two propositions can be readily demonstrated: first, the Jews owe an enormous debt to free enterprise and competitive capitalism; second, for at least the past century the Jews have been consistently opposed to capitalism and have done much on an ideological level to undermine it. How can these propositions be reconciled?

I was led to examine this paradox partly for obvious personal reasons. Some of us are accustomed to being members of an intellectual minority, to being accused by fellow intellectuals of being reactionaries or apologists or just plain nuts. But those of us who are also Jewish are even more embattled, being regarded not only as intellectual deviants but also as traitors to a supposed cultural and national tradition. 

This personal interest was reinforced by the hope that study of this special case might offer a clue to the general paradox—typified by West Germany where Jews play a minor role. Unfortunately, that hope has not been fulfilled. I believe that I can explain to a very large extent the anti-capitalist tendency among Jews, but the most important elements of the explanation are peculiar to the special case and cannot readily be generalized. I trust that others will be more successful. 

II. The Benefit Jews Have Derived from Capitalism 

An Anecdote and Some History 

Let me start by briefly documenting the first proposition: that the Jews owe an enormous debt to capitalism. The feature of capitalism that has benefited the Jews has, of course, been competition.[1] Wherever there is a monopoly, whether it be private or governmental, there is room for the application of arbitrary criteria in the selection of the beneficiaries of the monopoly—whether these criteria be color of skin, religion, national origin or what not. Where there is free competition, only performance counts. The market is color blind. No one who goes to the market to buy bread knows or cares whether the wheat was grown by a Jew, Catholic, Protestant, Muslim, or atheist; by whites or blacks. Any miller who wishes to express his personal prejudices by buying only from preferred groups is at a competitive disadvantage, since he is keeping himself from buying from the cheapest source. He can express his prejudice, but he will have to do so at his own expense, accepting a lower monetary income than he could otherwise earn. 

A recent personal experience illuminates sharply the importance of competition. Some years ago, I attended an International Monetary Conference held in Montreal. The persons there consisted, on the one hand, of members of the Conference, who include the two top executives of the major commercial banks throughout the world; on the other, of persons like myself invited as speakers or participants in panel discussions. A conversation with an American banker present who recounted a tale of anti-Semitism in American banking led me to estimate roughly the fraction of the two groups who were Jewish. Of the first group—the bankers proper—I estimated that about 1 per cent were Jewish. Of the much smaller second group, the invited participants in the program, roughly 25 per cent were Jewish.

Why the difference? Because banking today is everywhere monopolistic in the sense that there is no free entry. Government permission or a franchise is required. On the other hand, intellectual activity of the kind that would recommend persons for the program is a highly competitive industry with almost completely free entry. 

This example is particularly striking because banking is hardly a field, like, say, iron and steel, in which Jews have never played an important role. On the contrary, for centuries Jews were a major if not dominant element in banking and particularly in international banking. But when that was true, banking was an industry with rather free entry. Jews prospered in it for that reason and also because they had a comparative advantage arising from the Church’s views on usury, the dispersion of Jews throughout the world, and their usefulness to ruling monarchs precisely because of the isolation of the Jews from the rest of the community.[2] 

This anecdote illuminates much history. Throughout the nearly two thousand years of the Diaspora, Jews were repeatedly discriminated against, restricted in the activities they could undertake, on occasion expelled en masse, as in 1492 from Spain, and often the object of the extreme hostility of the peoples among whom they lived. They were able nonetheless to exist because of the absence of a totalitarian state, so that there were always some market elements, some activities open to them to enter. In particular, the fragmented political structure and the numerous separate sovereignties meant that international trade and finance in particular escaped close control, which is why Jews were so prominent in this area. It is no accident that Nazi Germany and Soviet Russia, the two most totalitarian societies in the past two thousand years (modern China perhaps excepted), also offer the most extreme examples of official and effective anti-Semitism. 

If we come to more recent time, Jews have flourished most in those countries in which competitive capitalism had the greatest scope: Holland in the sixteenth and seventeenth centuries, and Britain and the U.S. in the nineteenth and twentieth centuries, Germany in the late nineteenth and early twentieth century—a case that is particularly pertinent when that period is compared with the Hitler period.[3]

1.   The only other writer I have come across who explicitly stresses the benefits Jews have derived from capitalism is Ellis Rivkin, The Shaping of Jewish History (New York: Scribner’s, 1971). Unfortunately, Rivkin’s interesting analysis is marred by misconceptions about the nature and operation of capitalism. He takes the accumulation of capital rather than free entry as its distinguishing feature.

2.   See for example Hannah Arendt, The Origins of Totalitarianism (New York: Harcourt, Brace & Co., 1951), on “court Jews,” also Werner Sombart, The Jews and Modern Capitalism (London: T.Fisher Unwin, 1913) [translated from 1911 German original].

3.   Sombart argues that the relation is the reverse: that capitalism flourished where it did because Jews were given a considerable measure of freedom. But he would not have denied that the relation is reciprocal. And his version has been seriously questioned by economic historians. See Introduction by Bert F. Hoselitz to the American edition of Sombart’s book, Jewish Contributions to Civilization, 1919, chapter viia, pp. 247-267.

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